Rafael offers to buy Aeronautics for NIS 430m

The acquisition offer, together with businessman Avichai Stolero, is at a 10% premium on the Israeli drone manufacturer's market price.

Rafael Advanced Defense Systems Ltd. yesterday made an offer to acquire Yavne-based Aeronautics (TASE: ARCS) for NIS 430 million. The bid was made jointly with businessperson Avichai Stolero, whose business activities include finance, cyber, defense trade, real estate, and high tech. Aeronautics' share price is up 10% in trading on the TASE (Tel Aviv Stock Exchange). The price offered is a 10% premium on the market price. Aeronautics' share price has plummeted 60% since the company's offering last year.

Rafael, a government defense company, develops and manufactures advanced armament systems, including the Trophy tank defense system and the David's Sling and Iron Dome defense systems against missiles and rockets. Defense industry sources said that by acquiring Aeronautics, Rafael was seeking to obtain suitable platforms, such as the unmanned aerial vehicles (UAVs) made by Aeronautics.

The chairperson of Aeronautics is former Israeli navy commander and former Rafael CEO Vice Admiral (res.) Yedidia Yaari, its controlling shareholders are the KCPS, Viola, and Bereshit funds, and its CEO is Amos Mathan.

Defense industry sources told "Globes" that Rafael is planning to acquire Aeronautics through a triple reverse merger in which Aeronautics will be delisted from the TASE. They explained that Aeronautics was a key player in the Israel defense system and a merger between the two companies would make it possible to lower the prices of systems and make processes more efficient.

Rafael said, "As part of the expansion of its activity, especially in the international markets and also through mergers and acquisitions, Rafael has decided, together with businessperson Avichai Stolero, to offer NIS 430 million for the acquisition of Aeronautics. Rafael's capabilities in communications, closing firing circles, and so forth, combined with Aeronautics' capabilities, will enable Rafael to offer customers in Israel and overseas advanced systems with proven cost-benefit advantages." Rafael added that the process was subject to obtaining the necessary authorization.

Since Aeronautics became a public company last year, its share price has plunged 60%. The company reported poor results and a scandal involving it erupted last year, following which the Ministry of Defense suspended Aeronautics' marketing and export license for its K1 Orbiter UAV system for an important customer in a foreign country (a gag order still applies to the affair, after a criminal investigation was opened last year).

Aeronautics' revenue totaled $31 million in the first quarter of this year, down 5%, compared with the first quarter of 2017. The company posted a $1.2 million operating loss, compared with an $858,000 operating loss in the corresponding quarter last year, due to higher research and development expenses, among other factors. Aeronautics' first quarter net loss was $1.8 million, compared with a $180,000 net profit in the first quarter of 2017.

Aeronautics' orders backlog at the end of the first quarter was $158 million, 9% more than after the first quarter of 2017, but 6% less than at the end of 2017.

Aeronautics became a public company in the summer of 2017 when the funds controlling the company conducted a massive offer of sale amounting to over NIS 400 million. The company issued new shares for NIS 53 million at the same time to Leumi Partners, which led the offering. Trading on the TASE in Aeronautics' share then began at a NIS 1 billion market cap, which had shrunk to NIS 390 million as of the start of today's trading on the TASE.

Aeronautics develops and manufactures UAVs, observation balloons, bomb fuses, and advanced navigational systems. Its chairperson up until recently was former Israel air force commander Maj. Gen. Eitan Ben Eliyahu. CEO Mathan sold shares for NIS 5.8 million in the offering and Ben Eliyahu sold shares for NIS 6.5 million.